What is a long-term care insurance reimbursement policy?

If you're shopping for long-term care insurance, you may feel inundated by options. After all, long-term care insurance is a complex product that comes with several choices to make. But, those choices should start by choosing the right type of policy.

One common option is known as a long-term care insurance reimbursement policy. "Reimbursement policies were designed as insurance is designed. To replace your loss," explains Rhonda Bills, CLTC, instructor for Certification for Long-Term Care, an education firm that provides certifications for long-term care insurance agents. "When you receive care at home or in a community or facility setting, you will receive a bill." Reimbursement policies reimburse you for the cost of that bill. 

But, as with any other form of insurance, there's more to a long-term care insurance reimbursement policy than the above. Below, we'll detail how exactly these policies work. 

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What is a long-term care insurance reimbursement policy?

Long-term care insurance reimbursement policies are the traditional type of long-term care insurance policy. When you purchase the policy, you'll make decisions like how much coverage you need and how long you'd like that coverage to last. You'll also decide the types of long-term care you'd like your policy to cover. For example, some policies are designed to help you age at home with home health aides while others may be better suited if you would like to move into an assisted living community later in life. 

You'll also need to decide if you'd like to add riders to your policy. These are points of additional coverage that you can add to your base policy to customize it to your needs. For example, if you're concerned with inflation, you might consider an inflation protection rider so your benefits grow alongside the cost of care. 

Once you make your initial purchase, you'll typically make monthly long-term care insurance payments in the amount you agreed to when you purchased your policy. Though, there are single-premium long-term care insurance reimbursement policies that you'll pay for in one lump sum if that's what you're looking for. 

As long as you continue to make your premium payments, your long-term care insurance will usually start providing benefits when a licensed physician certifies your need for care. You'll simply send receipts or bills for your care to your insurance company and the company will cover the cost - up to your daily or monthly coverage limits. 

On the other hand, if your services are less expensive than your coverage cap, you could enjoy coverage for a longer period of time. A "good aspect of a reimbursement policy is if your receipts are lower than your monthly benefit - your insurance benefit pool will spread out and last longer," explains Bills. "Think of it as a glorified savings account. You are entitled to so much per month, and if you do not spend it all at once, it will spread out and last longer."

It's also worth noting that the benefits you receive as part of your long-term care insurance reimbursement policy are typically tax free. That's because benefits that are used to cover qualifying long-term care expenses aren't usually considered taxable income. And, since these policies only typically cover qualified long-term care expenses, you generally don't have to worry about any tax burden associated with your benefits. 

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Why you should buy a long-term care insurance reimbursement policy now

Here are some of the most important reasons it's a wise idea to purchase a long-term care insurance policy right now:

• Coverage availability: The number one reason to buy long-term care insurance immediately is the question, "will you be insurable?" asks Keith Bercun, regional account director with the financial services company, OneAmerica Financial Partners. "What I tell people all the time is 'you buy long-term care insurance with your health before you buy it with money.' You're never going to be more insurable than you are right now and life can turn in an instant."
• Prices could rise: The second reason Bercun says it's important to buy long-term care insurance now is because "as you get older, premiums increase. And generally, insurance companies make it more expensive as time goes on."
• You never know when you'll need it: Car accidents, slip and falls, and any other unexpected medical event can trigger a need for long-term care. Buying coverage now means you'll have that coverage when you need it, regardless of when that might be. 

The bottom line

Long-term care insurance reimbursement policies are designed to cover the cost of your long-term care when you need it. They can help pay for the cost of an assisted living community or nursing home and even help you absorb the additional costs of aging at home. But, it's important to purchase a policy as soon as possible. Discuss your options with a long-term care insurance professional now.